How Can I Decide if I Should Trade Stocks, Options, Futures or Forex?
Investors know that there are multiple avenues towards success. The time has come for you to make a decision about the financial market that you are going to be trading in. Each market has its upsides and downsides, and therefore your decision will come down to your personal preferences and your financial goals.
There are four major markets that people trade in: Stocks, options, futures and Forex.
The stock market can be volatile and your success here will depend on your timing. You need to pick the right company at the right time. You will have to learn how to truly value a company and determine if it is smart to pick their stock as your investment strategy. There is the potential to make a lot of money but you can also lose it very quickly.
When you invest in an option, you are signing a contract that says you can buy or sell a stock for a pre-determined price at a later time regardless of what the stock is trading for at that later time. If the stock is trading at a higher price, you can buy shares at the pre-determined price and sell them for profit. You can also sell the stock at the same pre-determined price in anticipation of the stock’s price falling in value BEFORE your option expires.
Futures are very similar to options with the key exception of obligation. You must buy or sell an asset at a predetermined future date and price. The decision needs to be made in advance and you must stick to it when the time comes. This is slightly riskier than trading options.
Forex is the most volatile out of all the four markets mentioned. You are buying and selling currency pairs with the expectation that certain currencies will increase or decrease. As currencies are representations of a country’s economic well-being, you are betting on whether a country will improve its economy or face a recession. This requires extensive knowledge of international news and an intuition about a country’s standing relative to other countries. For example, if you are trading USD/CAD, you need to know the economic status of USA and Canada like the back of your hand.
Now that you have the overview of each market, you should ask yourself some questions. Do I prefer a less volatile market or a more volatile market? Do I prefer a contractual arrangement or the freedom to make a decision in the moment? Do I have superior knowledge in one market compared to the others?
Even when you choose a market to trade, the journey does not end there. There are several trading strategies within each market that you can use to achieve success. Choosing and perfecting a trading strategy to generate earned income is a difficult and arduous process that takes many years of effort and continuous investment into a solid financial education. At the end of the day, make sure that you protect your money no matter what. It is very easy to lose money in any of these markets if you are not careful with your investing strategy.
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